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Semiconductor giant Arm leapfrogs Airbnb, Starbucks as AI craze boosts guidance

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In a year that will be remembered for AI, semiconductor designer Arm Holdings announced itself on the world stage with the biggest initial public offering of 2023. Its latest milestone moment means it can now be mentioned in the same breath as the likes of Starbucks and Airbnb.

The U.K.-based chipmaker, which is owned by SoftBank Group, reported blockbuster earnings Thursday that helped its share price soar on the back of rising corporate demand for automated capabilities.

Shares in Arm rose a staggering 47.9% Thursday after the group released third-quarter results for its 2024 financial year, as the group exceeded revenue expectations and gave a big upgrade to its full-year guidance.

Arm is looking to its royalty business for growth, where the rising adoption of its Armv9 technology helps the company make revenues when customers sell chips that use the technology for things like computers and automobiles. 

The group has been able to receive double the royalties from this technology compared with its older Armv8 offering. Sales from royalties jumped 11% in all to $425 million. 

Arm also makes licensing revenue from the sale of its Arm CPUs, where demand is driven by “all things AI,” according to its letter to shareholders. 

Overall sales rose 14% to $824 million while gross profits were up 13% to $788 million.  

“Arm delivered another quarter of record revenues driven by continued adoption of the world’s most pervasive compute platform,” said Arm CEO Rene Haas.

“The AI wave drove licensing growth as these new devices require Arm’s performant and power-efficient compute platform.”

The surprise results have set the group on a path to more record results, with Arm upgrading its guidance for the year. It expects to make up to $900 million in revenue in the fourth quarter of its financial year.

Arm leapfrogs tech and retail darlings

Investor’s approval of the results helped Arm’s market value jump to $116.8 billion by the time the NASDAQ closed Thursday.

The $37.6 billion the group added to its value in the space of a day is almost equivalent to the whole market value of credit giant Experian. The increase alone would put Arm among the world’s 500 most valuable companies.

It also makes Arm more valuable than household names across the retail, tech, and energy sectors like Starbucks, Airbnb, and BP.

Arm is now approaching the top 10 for semiconductor stocks in terms of valuation, and will undoubtedly be looking toward European rival ASML for its next scalp.

The share price gain from ARM “certainly helps to make the U.S. equities space interesting,” said Dan Coatsworth, investment analyst at stockbroker AJ Bell.

“It’s among the beneficiaries of the race to deploy AI by countless industries. The share price movement means investors have got a new name on their radar to play the space rather than simply jumping on the Nvidia bandwagon.”

Arm’s $55 billion IPO was the biggest of 2023, as the group raised $4.87 billion from investors hungry to jump in on an AI boom that did wonders for the valuations of companies like Nvidia and Microsoft last year.

The company snubbed its home country of the U.K. to list in the U.S. in search for higher liquidity. And it got what it asked for.

Shares soared on the company’s first day of trading thanks to massive oversubscription, a 25% increase helping it close $10 billion higher than its IPO price that opened the day.

Its success has also helped lift Softbank, which owns about 90% of Arm, to a resurgence in value.

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